A few weeks back, a client engaged my services to help him settle a debt that had been passed to the US Treasury for collection. As the Treasury often does, the file was farmed out to a collection company. The collection company was currently garnishing my client’s wages (15% of his pay check) which amounted to about $1,000 per month.
As I always do, my first call after being hired was to the collection company. The person who handles wage garnishment was very friendly, but she made it clear that she has seen the Treasury turn down pretty much every settlement offer. Apparently their attitude is that once they start garnishing, they are willing to bet that the borrower will stay at their current job long enough to pay the debt in full. My client says he won’t be with his current employer long enough for the Treasury to get all their money back, but that concept did not appear to phase the Treasury. Ultimately, the Treasury turned down an offer that was significantly higher than most of my other offers that are approved.
So what lessons can be learned here?
- - Ignoring your SBA loan obligation will not make it go away. In fact, it’s just the opposite. If you wait for it to get into the hands of a collection company, your chances of a successful settlement drop dramatically.
- - Wages garnishment is a real possibility if you owe the SBA money and have chosen to ignore the banks and SBA’s attempts to work out a settlement.
- - Being proactive about debt settlement can be the difference between a successful settlement and years of headaches.
- - How you choose to rationalize the situation is likely to be vastly different than how the Treasury will rationalize it. In most cases, threats of quitting your job (to avoid garnishment) and filing for Chapter 7 personal bankruptcy will fall on deaf ears. In most cases their attitude will be “ok, go for it”.
I can understand why a borrower might read my articles, which always advocate being proactive in the settlement process) and say “of course you are going to say that, you make money when people settle!” True, that is how I make a living. But at the same time, it doesn’t mean I’m wrong. The example described above is a perfect example of why it makes more sense to bite the bullet today in order to save yourself an ever larger headache down the road. If the fact that it’s hard to settle doesn’t convince you, keep this in mind: when the file gets passed to a collection company, an automatic penalty of 28% of the loan balance is tacked on to the loan balance. In other words, you can save 28% on your settlement just by dealing with the situation sooner than later.